Glenview’s Larry Robbins is one of the most optimistic hedge fund managers around. He predicts P/E multiples will expand by 45% by the end of 2013. This means the Dow Jones Industrial Average (DJIA) will surpass 20000 level in three years, assuming earnings will grow by a modest 5% per year. A couple of weeks ago Greenlight Capital’s David Einhorn predicted another crisis like the great depression. Last week Meredith Whitney predicted a municipal bond market meltdown, which would probably cause another crisis. Larry Robbins’ prediction is the most optimistic prediction we’ve seen coming from a credible hedge fund manager.
These predictions actually explain why the stock market is really trading at compressed multiples compared to the consensus 2011 earnings estimates. The probability of another recession is very real for several market participants and they would rather swim in cash than take a chance with the market. Treasuries already priced in another recession accompanied by several years of low interest rates. The stock market is more optimistic than the bond market, yet the P/E multiple for the entire market is pretty pessimistic. Larry Robbins believes that Fed will be able to achieve a moderate inflation environment where treasuries yield between 3% and 7%. He says the market trades at a multiple of 18 in such an environment.
Larry Robbins thinks those investing in 10 year treasuries aren’t doing so for the paltry return. They’re in it to front run the Fed and make a quick buck at the expense of the taxpayers. Once this trade is over, Robbins says, they have nowhere to go except the high quality stocks in the stock market. That’s why Larry Robbins’ Glenview favors high quality large cap stocks. The $4.8 billion Glenview capital currently invests in large cap stocks with an average market cap of $10.3 billion. Glenview recently acquired more Life Technologies Corporation (LIFE) shares and has around $525 million invested in LIFE (Lee Ainslie’s Maverick Capital has a large LIFE position as well). Glenview’s other large positions are Express Scripts Inc (ESRX), McKesson Corporation (MCK), DaVita Inc (DVA), Medco Health Solutions (MHS) and Thermo Fisher Scientific (TMO). As you can see, Larry Robbins really likes healthcare stocks. His largest non-healthcare holdings are Fidelity National Information (FIS), Xerox (XRX), and Aon Corp (AON). Chase Coleman’s Tiger Global Management also has XRX in its portfolio.